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					                                                                                   Investment Bulletin

Inside
                                                                                                         Latest News
    The Spotlight, Cerno Capital                                                                         from Longbow Capital
    News
                                                                                                                           Longbow invests
    Recent Investment, Biotronics 3D
                                                                                                                                   £1m into
    The BCI                                                                                                                   Biotronics 3D
    The Final Word
                                                                                                                              More on page 3




                                                                                                           Longbow invests £1.8m into
Longbow Portfolio Service Update                                                                           Destiny Pharma

Destiny Pharma was the second investment made by the Portfolio Service. Drug development                   More on page 2
programmes carry high levels of risk and so a lower than normal weighting was allocated to the
investment initially. However, over the past three years, the risk profile has reduced substantially
and we have increased the weightings within portfolios to reflect this.

All our Portfolio Service investors now have holdings in Destiny Pharma (see over). We have
supported three rounds of investment, amounting to £4m out of a total of £10m invested since
2005. We believe the company continues to offer excellent potential to generate strong returns
                                                                                                          PWB launches
as it enters into an exciting stage of its development.
                                                                                                          BreastLight!
The area of anti-infective treatment was an important area three years ago but this is now an even
higher priority for Governments and communities. Drug resistant infections are being encountered          More on page 2
on an increasingly recurrent basis but the means to contain such infections remain limited. We
believe this plays directly to the key strengths of Destiny’s technology capability and that this will
soon become attractive to a growing number of large pharmaceutical companies.

For the earliest investors into the Portfolio Service, Biotronics 3D (featured on page 3) represents
their last investment. It is encouraging that most of these investors are now wishing to extend their
investment commitments with Longbow.

We anticipate a reduction in investor appetite for risk. However, the longer term nature of
venture capital makes this a particularly interesting time, presenting improved opportunities for
those with the capital and profile to attract good quality investments. Large companies with global
distribution and brands are more receptive than ever to new technologies that can enhance their
                                                                                                         Longbow Capital LLP (London Office)
product portfolios. Picking the right investments remains key, but good exits can be achieved by
                                                                                                         Julian Hickman
companies that have demonstrated initial commercial success.
                                                                                                         25 Watling Street, London EC4M 9BR
With over 100 private client investors and £14 million of commitments Longbow is expanding               Tel: 020 7332 0320
its investment activities at a time when alternative assets, including venture capital, are now          Fax: 020 7248 7586
becoming a more widespread. We will continue to build portfolios with a healthcare focus                 www.longbow.co.uk
as we believe the overall growth opportunities remain undiminished in this sector, even in more          info@longbow.co.uk
economically challenging times.
  The Spotlight                                                                   equity returns will, given a proper period of measurement, outstrip
  CERNO CAPITAL                                                                   those of other broad asset classes and that the returns available
                                                                                  from venture capital could enhance portfolio returns. For the second
  James Spence (pictured left) and Nick Hornby (right) give
                                                                                  precept to hold true, an investor must hold a diverse number of venture
  their take on Venture Capital investing.                                        capital investments which should be made through a specialised,
                                                                                  professional investment company whose blended portfolio returns
                                      CERNO CAPITAL is an independent             are likely to be within the top quartile of their peers.
                                      wealth management partnership
                                      providing advisory and investment           We have been investing both personally and on behalf of our clients
                                      management services to a small              with Longbow for almost three years and will continue to recommend
                                      number of individuals, family offices,      investments sponsored by Longbow. The dedication of the Longbow
                                      educational     endowments        and       partners to their investments has impressed us. We particularly like
                                      charities.   Nick Hornby, founder           their focus on the healthcare sector, where the fundamentals point
                                      partner of Cerno Capital comments:          to a long and steady secular rise in expenditure. Finally, we like the
                                                                                  fact that Longbow’s investment approach stands up on its own
                                      “We invest our clients in discretionary     merits. Whilst the tax benefits to UK investors under the Enterprise
                                      portfolios of long term, specialist         Investment Scheme are clear, we always make a point of turning down
  funds, with the objective of compounding total returns over time. Cerno         investment opportunities that are driven solely by tax considerations.
  Capital provides the infrastructure, access and discretion of a private         On this important issue, Longbow has the cart in the proper place:
  family investment office. All client portfolios are bespoke. As part of         trailing the horse.”
  this service we provide access to selective venture capital investments
  and Longbow Capital has become an important collaborator in this                Cerno Capital was established in August 2008 by Nicholas Hornby
  area of investment.                                                             and James Spence.

  The only form of investment that makes sense is long-term and the               For more information on Cerno Capital please visit
  inherent attributes that make venture capital attractive to us and our          www.cernocapital.com or call 020 7491 5110.
  clients remain unchanged. This is based on two simple notions: that


Company Updates
The latest news from our Portfolio companies




Polytherics has announced new collaborations with Celtic Pharma,                There has been significant improvement in Direct Health’s operating
Biocompatibles plc and Alligator Bioscience, a Swedish biotechnology            performance over the past six months. It achieved a record month in June
company. In May, Polytherics announced the grant of a European patent           in both profit and revenue volume terms, which should be sustainable.
on the application of its technology to improve drug efficacy.                  Revenues are increasing to more than £26m p.a. and a new contract
                                                                                tender has been won with Stockton on Tees Local Authority. This is
                                                                                worth circa £500,000 pa initially and has added to a growing presence
                                                                                in the North East.

The first half year of trading has seen CyDen’s professional sales division
(selling I-Pulse products to spas, salons and clinics) trading in line with
its budget forecast. The launch in Boots the Chemist of the consumer
model of the i-Pulse is scheduled for early 2009 and the extended lead-         Destiny gained some high profile press coverage following the publication
in has enabled a rigorous trialling process to be completed and for             of results for its XF compound at the Clinical Microbiology & Infection
improvements to be made. A separate consumer i-pulse product is now             Diseases conference in Barcelona in April. Their nasal decolonisation gel,
being developed for direct sales through alternative market channels.           XF 73 was found to be effective against the five most common strains
                                                                                of MRSA. Significantly, studies suggest that infections exposed to an XF
                                                                                compound do not readily mutate or develop resistance. This indicates
                                                                                the XF compound could be applied to a number of increasingly common
                                                                                infectious conditions. Destiny raised over £4m (circa £2m from Longbow
In June Longbow invested £1m into Domainex alongside The Capital                investors) from its existing investors over the summer.
Fund who invested £250,000. The investment will be used to expand
the contract research business as well as accelerate internal product           These funds will be applied to expanding the clinical trial and XF
development. Since the investment the technology portfolio has been             compound development programmes beyond the end of 2009.
added to and its core patent has been granted in Europe.




                                                                                Longbow invested £1.5m in January to develop its technology in two
PWB Health Ltd has seen an eventful 2008 so far with the launch of their        product areas; non melanoma skin cancer and acne. The design process
first product; the BreastLight. Market response has been very positive.         is almost completed and commercial discussions with potential partners
79 user-groups have been set up with over 1500 individuals testing the          have commenced.
product. Longbow Capital also recently completed a £350,000 investment
alongside the Scottish Enterprise Co-investment fund.
Venture Capital in the Healthcare Industry
Both sides of the investment story




Company                       Biotronics 3D

Sector                        Healthcare IT

Date Completed                12.09.2008

Investment                    £1m


Biotronics 3D has conceived and developed a technical                          Pictured left is an example of an image showing calcium build up in the blood and right
framework called 3D Net which enhances medical image                                                   an internal image of the human abdomen.

analysis. The technology enables clinicians to manipulate
CT and MRI scans in 3D. The technology also forms
the core of other specialised products including virtual                   Why Longbow?
colonoscopy.                                                               Biotronics 3D CEO Harry Hatzakis discusses the
                                                                           importance of venture capital for enterpreneurial
                                                                           companies.
Why Biotronics 3D?
Longbow Partner Edward Rudd explains what is special                       Why Venture Capital, and why Longbow?
                                                                           The modern health IT industry has in recent years been forced
about Biotronics 3D
                                                                           to become global, as a response to the flattening of the world
                                                                           economy. Emerging innovative companies will only succeed in the
What impressed you about Biotronics 3D?                                    present economic environment if they fashion their strategies, their
Prior to our investment, the company was operating with only six           management and their operations in pursuit of a new goal: integration
full time employees and had received relatively little funding. Despite    of research, development, production and value in the delivery of new
this they had developed world class products that were being sold          products worldwide.
in the US, UK and Japan. Customers and distributors were highly
complimentary about the technology, products and support that they         The old monolithic multinational that created value in an old hierarchical
had received from Biotronics 3D.                                           fashion is dead, mainly because of the fundamental restrictions in
                                                                           delivering innovation in the modern economy. Not since the 19th
Why did Longbow choose to invest?                                          century have our systems of innovation and production endured
The demand for such products is set to grow rapidly over the next          such large and fundamental changes to their architectures. These
few years as radiology departments are under pressure to extract           changes have provided a great opportunity for smaller companies
greater output from their expensive CT and MRI scanning equipment.         with remarkable abilities, like Biotronics3D, to adapt to global market
By reducing as many as 10,000 images per scan to one 3D image              requirements rapidly.
diagnosis is made easier, more consistent and, importantly, faster.
                                                                           In Longbow Capital we found a dynamic company, with experience in
The founders have proven that they can turn complex technology             working with smaller companies in the healthcare sector. We share the
into cost efficient, user friendly products, but without investment in     same vision of the way healthcare needs to be delivered in the 21st
sales and marketing Biotronics 3D would not be able to achieve their       century and agree on the ever increasing role of global innovation in
potential in such a fast moving environment. Our investment enables        that market space.
the company to realise this potential and generate a healthy return for
doing so.                                                                  We also realised that Longbow will offer not only capital, but a
                                                                           strong support network for our company (through business support,
What do you believe the outlook is for Biotronics 3D?                      introductions and advice) to further develop and implement a strategy
The company recently agreed a collaboration with the institute of Cancer   that will increase our company value in the years to come.
Research that was looking for a partner to commercialise their MRI
oncology intellectual property. Work is already underway to integrate      What will the capital be used for?
this with 3D Net to create a new product that can help diagnose breast     The raised capital will be used to take on key personnel to help develop
cancer and I expect this collaboration will extend to other technologies   our sales and marketing departments. This will help us achieve a
and diseases (such as prostate cancer) in due course.                      global reach via partnerships with other companies in the world
                                                                           market. Investing in Sales and Marketing will accelerate our brand and
Ultimately, I see Biotronics 3D being purchased by a company that          product penetration to the international market. This will be pivotal in
will benefit strategically from owning such 3D imaging expertise           the implementation of our business plan. We anticipate the impact of
and products. This might be a hardware manufacturer or a software          this investment will lead to the further expansion of product line and
company.                                                                   eventually a portfolio of disease management IT products with an initial
                                                                           focus on breast and colon cancer.
A Day in the Life of the BCI: Swansea • Oxford • Tel Aviv
THE BCI are on the frontline of innovation, but how do they discover and develop exciting new products and technologies?
Louise Bryce, Marketing Manager, explains.

The      Boots     Centre     for
Innovation is passionate about
delivering great health and
beauty solutions that help our
customers look good and feel
great. Our core purpose is to support innovators who are developing
new products and technologies within the health and beauty sectors.
We can help develop the innovative new product or technology from
the original idea to the finished product on the shelf, sold through the
vast Boots retail network.

                               So how do we go about harnessing the ideas
                               out there? Here at the Centre we believe the
                               best way is to get out into the world and meet
                               the talented innovators of the future.
                                                                                    The BCI team in Swansea
                               We host events regularly all over the world
                               bringing together people and concepts; most
                               recently in Tel Aviv, at Oxford University and at   Oxford University, UK
                               home in Swansea.                                    The Centre is currently hosting a series of New Product Innovation
Longbow Partner Ron Petersen                                                       Seminars with some of the UK’s leading Universities. In June 2008
speaking at the New Product
                               Tel Aviv, Israel                                    we hosted, in partnership with ISIS Innovation, the first free seminar
Innovation Seminar 2008
                         The Boots Centre for Innovation hosted its                at the Said Business School in Oxford. The University’s scientists and
second New Product Innovation Seminar in June 2008. On this occasion               entrepreneurs had the opportunity to learn about the open innovation
the location was Israel, with the objective of meeting with innovative             model adopted by Boots and key areas of consumer needs identified
companies and inventors in our field of health and beauty.                         by the Centre. Longbow partner Edward Rudd provided an overview of
                                                                                   Venture Capital for the group.
We deliberately selected Israel as it is one of the most innovative countries
in the world, particularly in diagnostics and medical devices. It is also          A follow up event took place two weeks later allowing up and coming
home to a successful high-technology industry and a young, highly                  innovators to meet the BCI team in ‘Dragon’s Den’ style where the
educated workforce including talented physicians and biologists.                   innovators were able to pitch their pioneering health and beauty
Alliance Boots Health & Beauty experts, alongside Longbow’s Ron                    concepts.
Petersen, presented to 100 delegates discussing market trends and
future growth opportunities as well as information on how to access                Swansea, UK
and work in partnership with Alliance Boots to bring new products to               Leading figures in academia, medicine, science and technology visited
market. Following the conference, pre-selected entrepreneurs had                   us earlier this year for the 2015 Healthcare Summit. The event, hosted
private meetings with senior managers from Alliance Boots and the Boots            by the Centre included presentations and working groups providing the
Centre for Innovation where they were given the opportunity to pitch their         attendees with the opportunity to share knowledge, views and predictions
product concepts. Thirty nine companies put forward proposals on that              on a variety of healthcare-related topics. The impact of global trends,
day and the BCI are now actively pursuing relationships with many of               developments in nanotechnology, current and future legislation and next
these companies.                                                                   generation consumer needs were all hot topics of discussion.


  The Final Word By Edward Beckett                                                 years of the date of the capital gain, therefore this opportunity will last
                                                                                   until 5 April 2011.
  The 2008 Budget reduced the headline rate of capital gains tax (CGT)
  from 40% to 18% on gains crystallised after 6 April 2008. What is less           Alternative assets, including venture capital, will play an increasing
  well known is that investors can use EIS investments to reduce the               role in long term investment strategies and the recent volatility in
  CGT rate on gains made up to three years previously.                             equity and fixed income markets highlights the need for investors
                                                                                   to diversify across different asset classes. Recent corporate activity
  Gains made between 6 April 2005 and 6 April 2008 will have been                  within the healthcare and life sciences markets highlights the
  charged at a rate of 40%. By investing into EIS qualifying companies,            attractiveness of the sector as large cash rich companies continue
  CGT can be deferred at 40% but so long as the qualifying investment              to plug gaps in their product portfolios. We are therefore as excited
  is held for three years, the original gain will become chargeable at the         as ever by investing into emerging healthcare companies and believe
  new rate of 18%. In this way the investor has reduced the CGT rate               that now is an attractive time to be building a portfolio.
  by 22%. The EIS Qualifying Investment must be made within three



  Important Notice. This document provides information about Longbow Capital LLP. This document does not constitute an offer to invest in
  an unquoted investment opportunity or to invest in an unregulated fund. Longbow will not be offering advice and will not otherwise be responsible
  for providing customer protections in respect of transactions and arrangements proposed in this document. This document is directed only at
  persons who are classified or capable of classification as intermediate professionals or market counterparties under the Financial Services &
  Markets Act 2000. This document has been issued and approved by Longbow Capital LLP which is regulated by the FSA.

				
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